# Reserve Ratio Calculator

Written by:
PK

On this page is a bank reserve ratio calculator. Enter a bank's cash and equivalents plus deposits on hold with a central bank, plus and creditor money in the form of deposits (or other forms) to compute the reserve ratio.

## What is the reserve ratio?

A bank reserve ratio is the proportion of customer deposits that a bank holds on its books. Any remaining capital is deployed to investments.

While – in theory, in good times – there's no minimum reserve ratio a bank needs to originate new loans or make other investments, the reserve ratio is important for depositor confidence. A healthy reserve ratio prevents a liquidity crisis in a bank, or a "bank run". On a national or global level, the reserve ratio is also an important part of open market operations – by setting minimum reserve ratios, central banks can slow down debt growth originating from banks.

In the United States, those minimum limits are set by the Federal Reserve. You can find the reserve ratio minimum for depository institutions in the United States here.

### Relationship to the Reserve Requirement

When the central bank of a country or economic institution sets a reserve ratio minimum, they are also setting a depository institution reserve requirement. That is, it implicitly sets a minimum amount of cash (and central bank deposits) banks have to hold.

For example, if a central bank sets the reserve ratio to a minimum of 10%, for every deposit a bank intakes, it has to reserve 10% in cash and deposits with the central bank. Institutions, in general, would need to hold 10%*their Deposit Base.

### Reserve Ratio Formula

The capital adequacy ratio formula is:

Reserve\ Ratio=\frac{Cash\ \&\ Equivalents}{Deposits}

Where:

• Cash & Equivalents – Either cash and cash-like liquid instruments, or by country deposits held by the central bank.
• Deposits – Money on deposit to the bank from its customers.

## Other Banking Ratio and Valuation Calculators

Now, try these other DQYDJ tools to value banks:

### PK

PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK lives in New Hampshire with his wife, kids, and dog.

### Don't Quit Your Day Job...

DQYDJ may be compensated by our partners if you make purchases through links. See our disclosures page. As an Amazon Associate we earn from qualifying purchases.